The drop in mortgage rates has fueled a surge in refinance activity. Last week, the Mortgage Bankers Association reported that refinances were up 11% week over week. When the MBA reports on this week's activity (next week), we expect to see continued strong demand.

It's been a different story for purchase activity. Last week, the MBA's purchase index was down 1%. Year over year, the purchase index is down 4%. This is not good news, especially when you consider that cash sales are dropping as a percentage of overall sales, and will likely continue to do so.

Now, we get the report that home builder sentiment is dropping too. The National Association of Home Builders' (NAHB) sentiment index dropped to 54 in October, which is a considerable decline from the 59 posted in September. Home builders, like a lot of other people, are feeling less sure of themselves these days. We hope the drop is a one-off reading, but time will tell.

Falling interest rates, as we note above, are an indicator of falling confidence and rising risk aversion. This is why we don't get terribly excited when rates continually fall. To be sure, falling rates are good for refinance business, but for the overall health of housing and mortgage lending, we need to see a pick up in purchase activity. For that to occur, we need more confidence and less risk aversion. This, we believe, will be reflected in rising interest rates.

So if we cheer-lead on occasion for rising rates, it's not because we favor rising financing costs, it's because we favor more business and consumer confidence and more economic growth.

Information provided by Jessica Regan.

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